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Aggregate Planning for Optimal Production

Aggregate planning determines a firm's necessary resource capacity to meet expected demand. The goal is to develop a realistic production plan that satisfies organizational goals and customer demand needs at the lowest total cost. This is done by specifying the optimal production rate, workforce level, and inventory over an intermediate planning period of 6 to 18 months. The aggregate operations plan balances aggregate demand and production capacity.

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Bipin Bansal Agarwal
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622 views10 pages

Aggregate Planning for Optimal Production

Aggregate planning determines a firm's necessary resource capacity to meet expected demand. The goal is to develop a realistic production plan that satisfies organizational goals and customer demand needs at the lowest total cost. This is done by specifying the optimal production rate, workforce level, and inventory over an intermediate planning period of 6 to 18 months. The aggregate operations plan balances aggregate demand and production capacity.

Uploaded by

Bipin Bansal Agarwal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Aggregate Planning

Aggregate planning is an intermediate


planning method used to determine the
necessary resource capacity a firm will
need in order to meet its expected
demand.

Process planning

Long
range

Strategic capacity planning

Intermediate Forecasting
& demand
range
management

Sales and operations (aggregate) planning


Sales plan

Aggregate operations plan

Manufacturing
Services

Master scheduling

Material requirements planning

Short
range

Order scheduling

Weekly workforce and


customer scheduling
Daily workforce and customer scheduling

Goal of Aggregate Planning


To develop a realistic production plan on
an aggregate level that will satisfy
organizational goals and customer
demand needs at the lowest total cost.

The Aggregate Operations Plan


Main purpose: Specify the optimal combination
of
production rate (units completed per unit of
time)
workforce level (number of workers)
inventory on hand (inventory carried from
previous period)
Product group or broad category (Aggregation)
This planning is done over an intermediaterange planning period of 6 to18 months

Balancing Aggregate Demand


and Aggregate Production Capacity
10000

Suppose the figure to


the right represents
forecast demand in
units
Now suppose this
lower figure represents
the aggregate capacity
of the company to
meet demand

10000
8000

8000
6000

7000
6000

5500
4500

4000
2000
0
Jan

Feb

Mar

Apr

May

Jun

9000

10000

8000

8000

What we want to do is
balance out the
production rate,
workforce levels, and
inventory to make
these figures match up

6000

6000

4500

4000

Jan

Feb

4000

4000
2000
0
Mar

Apr

May

Jun

Required Inputs to the Production


Planning System
Competitors
behavior
External
capacity

Current
physical
capacity

Raw material
availability

Planning
for
production

Current
workforce

Inventory
levels

Market
demand

External
to firm

Economic
conditions

Activities
required
for
production

Internal
to firm

Principles of the Chase Method


The chase method helps firms match
production and demand by subcontracting/
hiring/ firing workers as necessary to
control output

Principles of a Level Production


Method
The level method allows for a constant
rate of production and uses inventory
levels to absorb fluctuations in demand.

Graph of Level vs. Chase


Strategy

Summary
Aggregate production planning is a vital tool to
aid firms in balancing supply and demand.
All possible strategies should be considered
initially and then eliminated based on cost and
organizational policy.
While pure strategies such as chase demand
and level production may work for some firms,
most tend to use a mixed strategy.

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